The purpose of using Average True Range (ATR) in technical analysis is to measure market volatility and help traders make informed decisions about risk management and trade entry and exit points.
By calculating the average true range of price movement over a specified period of time, ATR provides a measure of how much the price of an asset typically fluctuates over that time period. Traders can use this information to set stop-loss orders and take-profit levels based on the level of risk they are willing to accept.
ATR can also be used to identify potential trend reversals. When the ATR begins to increase, it may indicate that a trend is starting to gain momentum, while a decreasing ATR may suggest that the trend is losing momentum. Traders can use this information to make decisions about whether to enter or exit a trade.
Overall, ATR can be a useful tool for traders looking to manage risk and make informed decisions based on market volatility.